Thinking to be a Guarantor for a Home Loan? Check These Pointers First
Usually, home loan comes with list of terms and conditions which borrowers need to fulfil to become eligible for credit. Few things that have not changed so far in home loan industry is requirement of guarantor.
It has always been a necessary requirement in the earlier days by the lenders before sanctioning a home loan. But it is not the same now as the home loan guarantor is only required for availing a high loan value. Thus, a guarantor plays a crucial loan in disbursing the loan amount to the primary borrower.
Points to check before being a guarantor
With rising property prices, middle and lower-income groups depend on financial institutions to assist them in acquiring their property. However, there are possibilities where borrower is unable to obtain credit due to certain reasons, such as poor credit score and low eligibility.
In case, lenders ask them to provide guarantor with good CIBIL score to improve borrower’s creditworthiness further. Being a home loan guarantor has its own liabilities and disadvantages.
Thus if an individual is planning to take up this responsibility, following are the factors that they must consider-
- Type of guarantor
Ideally, lenders require two types of guarantors for home loans, namely- financial and non-financial guarantors. If a borrower opts for a financial guarantor, the lender will ask for financial documents, including collateral. On the contrary, if a non-financial guarantor is chosen, they will provide an assurance regarding the borrower’s background. Moreover, lenders can reach out to the guarantor if they are unable to connect with the primary borrower.
- Affects loan eligibility
Another crucial factor to consider before becoming a home loan guarantor is that if the borrower fails to repay loan, the guarantor has to make the entire repayment, including interest and associated fees. This further affects the guarantor’s credit score and finances. Moreover, if the guarantor wants to avail credit in future, his/her loan eligibility will be reduced, and may be considered ineligible to avail the preferred loan amount.
- Financial obligations of a guarantor
As financial guarantor, one is liable to pay outstanding amount or any other dues generated by main borrower in case of default. In such case, as per law, primary borrower will be listed under “wilful defaulter”.
- Loan duration
The repayment tenor of home loan plays significant role for guarantor as he remains financially bound till tenor is complete. If it is a short term loan, then the relief is early.
If the loan is foreclose before the end of the tenor, then lenders should notify the credit scoring department regarding the release of guarantor ship, allowing the guarantor to avail high loan value for his/her requirements. In such cases, a guarantor must monitor whether loan foreclosure details have been report on time or not and should also collect a NOC from the lender after successfully closing the loan.
- Consequences of default by the primary borrower
It is a guarantor’s responsibility to repay outstanding loan amount in case of default. In case of untimely death of borrower, guarantor needs to step in complete the repayment and foreclose loan.
As already mentioned, financial institutions demand guarantors when the applied loan amount exceeds the set limit or the borrower possesses a poor credit score or history. To avail credit in such a scenario, a guarantor has to meet home loan eligibility criteria set by the lender.
Besides, a guarantor must be well aware of the levied home loan interest rates. This is because, in case of default in payment, guarantor needs to repay the outstanding amount. So if interest rates are not checke carefully, it can cause financial strain for the guarantor.
Apart from these, one needs to know that to be eligible for a home loan guarantor, he/she needs to be over 18 years, a resident of the country, and have a stable income to repay the loan.
Therefore, individuals willing to avail housing loan can connect with reputed housing finance companies, where they can also avail pre-approved offers as an additional benefit. These offers are available on a wide range of financing options, such as a loan against property, home loan etc. One can reduce the hassle of documentation and accelerate the loaning procedure by availing these offers. To check the pre-approved offers online, mention your name and contact information.
Becoming a home loan guarantor is a matter of huge liability. Therefore, one must carefully scrutinise borrower’s essential documents and repayment capacity to avoid any financial burden in the long run.